Right versus duty
The whole unit turns on one distinction. A lease option gives the lessee the option — the right and not the duty — to purchase at a later date. A lease-purchase generally obligates both parties to complete the sale at the end of the lease term.
The exam reverses these deliberately: an answer saying both must close under a lease-option while only the tenant must close under a lease-purchase has the definitions backwards.
Recording is not what separates them, although a bond for title is recorded under O.C.G.A. 44-2-6. And neither may be oral: both concern an interest in land and must be written under the Statute of Frauds.
Working the money
Option fees and rent credits both reduce the cash due at closing, and questions test whether you remember to apply both.
Worked example. Purchase price $250,000, option fee of 3%, rent credit of $200 per month for 24 months, option exercised.
- Option fee: 3% × $250,000 = $7,500
- Price after the option fee: $250,000 − $7,500 = $242,500
- Rent credits: $200 × 24 = $4,800
- Cash due at closing: $242,500 − $4,800 = $237,700
Stopping at $242,500 forgets the rent credits. Getting $245,200 credits only the $4,800 and forgets the option fee. Answering $250,000 credits nothing, which would be right only if the contract made the option money and rent credits noncreditable.
Contract for deed
In a contract for deed — also called a bond for title or installment land contract — the buyer takes possession immediately and pays the price in installments, while the seller retains legal title until all payments are made. The buyer's interest is equitable title.
Giving the buyer legal title along with possession would defeat the seller's security, which is the entire point of the arrangement. No closing attorney acts as escrow agent here; that is a different structure. And it is wrong to say neither party holds title until recording: under O.C.G.A. 44-2-6 recording gives priority over later purchasers without notice, but recording is not what creates title.